Safe Home Income Plans (SHIP), the trade association for equity release providers, has been urged to tackle 'unexplainable' early redemption penalties among providers, as an independent report into equity release has levelled further criticism at the sector, reports Mortgage Solutions (30/4/07).
The Defaqto study, Equity Release in the UK 2007, criticised the fact that several equity release providers do not tell customers exactly what their early redemption penalty will be, as they claim that it is impossible to calculate the figure in advance as factors including interest rates and money market swap rates are subject to change.
The report concluded that: "Clarity of terms should be a desirable feature and Defaqto expects this issue to be addressed by the providers concerned as they are attracting increasing levels of criticism."
Commenting, Jon King, chief executive of SHIP, said that despite the criticisms, it had no plans to address the subject. "SHIP never gets involved in this area, because this is a pricing matter. It is an advice issue, a question of matching the right product to the right client."
Robin Gordon-Walker, spokesman for the FSA, said Mortgage Code of Business (MCOB) rules made it clear that providers must state early redemption penalties as a cash value. He warned: "Lenders need to have regard to that rule – when there is a specific rule, it should be honoured."
It has been suggested that the problem could be addressed if the industry as a whole made a commitment to change their policy on redemption penalties.
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